Defying The Odds: The Healthcare Market Continues To Attract Investment

By Tom Schramski, PhD, CMAA and David E. Coit, Jr., DBA

Volume 3 Issue 4 February 16, 2016

Based on the healthcare market cycles of the last 40 years, including the Great Recession, we have been conditioned to believe the bottom eventually falls out of every sector.  Yet, despite the eroding value of many commodities and world stock markets, healthcare investment, including M+A transactions, remains strong.

The just-released GF Data® M&A Report suggests that private equity healthcare deal activity was robust through 2015 and, in some strata, as vibrant as it’s been for some time.  For example:

  • High EBITDA premiums for Total Enterprise Value (TEV) increased during 2014 in the $10-25 million range (to 6.6x); the $50-100 million range (to 8.0x); and the $100-250 range (to 9.7x).  The $10-25 million TEV multiple is especially noteworthy since this is often the size of healthcare “add-ons” to existing platforms.
  • Healthcare deal activity recorded by GF Data® increased significantly in 2015 for private equity-sponsored transaction.  This data appears representative of the healthcare deal space, where consolidation continues at a brisk pace.

GF Data’s® approach is noteworthy because of the rigor with which their data is collected.  While it doesn’t address the next lower range ($2-10 million TEV where the multiples are often 4-5.5x), it matches closely our own experience in 2015 as well as healthcare deal valuations well into our pipeline for 2016.

Yes, it would be folly to believe there is little risk ahead, but we remain optimistic because of the unique nature of our healthcare marketplace.  While we are bedeviled by unnecessary regulations and old practices, the flip side is an extraordinary opportunity for entrepreneurial innovation.

The ride has just begun.